Macau, “Asian Las Vegas”, urges casinos to move beyond gambling – The Diplomat

Having lost money due to COVID-19, the US casino giants that helped make Macau the “Asian Las Vegas” face a new challenge: The tiny Chinese territory wants them to help reduce its gambling addiction by paying to build theme parks and other attractions. .

The former Portuguese colony has not been involved in business decisions for decades, but now aligns with mainland China’s official strategy, where foreign companies should help pay for the ruling Communist Party’s development ambitions, lucrative or not.

The licenses of MGM Resorts, Las Vegas Sands, Wynn Resorts and three Chinese competitors that have invested billions of dollars in Macau will expire in December. The rules, published in early July, say that anyone who wants to work for the next 10-year period faces an additional requirement to invest in “non-gaming projects.”

Casinos are facing even more financial pressure after they were ordered to close along with most other businesses this week as Macau struggles to control the novel coronavirus outbreak. They were already operating under rules introduced at the end of June that limited the number of their employees to 10 percent of the usual.

Financial analysts expect Americans to get licenses, but the government says bidding is open to everyone.

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An area of ​​700,000 people, centered on a 30-square-kilometre (12 sq mi) peninsula jutting into the South China Sea near Hong Kong, is the world’s largest gambling hub, but is under pressure from Chinese President Xi Jinping’s government to make it smaller relied on its dominant industry.

Beijing wants theme parks, entertainment and conventions to attract more non-Chinese visitors. Even before tourist travel was shut down to combat COVID in 2020, the mainland was trying to restrict the flow of players across the fenced border separating Macau from Guangdong.

Macau “is committed to guiding the composition of industries towards adequate diversification,” Macao Economy Minister Lei Wai Nong said at a May 31 government meeting.

An added complication for Americans: Relations between the Xi government and Washington are tense over disputes over trade, technology, human rights and other irritants. Other companies have suffered retaliation for the U.S. tariff hikes, but Macau casinos have not been affected.

“There is a high risk that at least one, if not two, may not get a new concession,” said Ben Li, managing partner of IGamiX, ​​a Macau-based gambling consulting firm. “Why should 50 percent of such a dominant industry in Macau be turned over to foreigners, especially Americans?”

The need for change comes as Macau faces increased competition for potential non-Chinese players from casinos in Singapore, Malaysia and Cambodia.

Financial analysts expect MGM, Sands and Wynn to be approved for licenses because of the jobs and tax revenue they generate. Their casino hotels with thousands of employees rise above the narrow streets of the centuries-old center of Macau and Cotai, a strip of land reclaimed from the sea.

However, the risk that a well-known operator may not be licensed “should not be ignored,” according to a June 16 Fitch Ratings report.

Chinese competitors include SJM Holding, part of the empire of the late Stanley Ho, the competitive ballroom dancer and “King of Gambling” of Macau, which had a four-decade state monopoly on casinos until 2001. SJM is run by Ho. Pansy’s daughter.

Others are Melco International, run by Ho’s son Lawrence, and Galaxy Entertainment Group.

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The decision in 2002 to allow foreign-owned casinos to open brought a flood of money to Macau, once best known in China for its Portuguese-style egg tarts, and billions of dollars in profits to their operators. A total of six license holders operate 41 casinos.

Annual revenue from slot machines, dice tables and other games peaked at $45 billion in 2013. This equated to $65,000 for every man, woman, and child in Macau and more than triple Nevada’s 2021 income of $13.5 billion.

But revenues were falling even before COVID-19 hit in 2020. Beijing has tightened controls on how often players from the mainland can visit casinos. Restrictions were placed on financial transfers to Macau as part of the fight against money laundering and tax evasion.

By 2019, before the pandemic, gambling revenues had fallen 19 percent from 2013 levels to $36.4 billion. In 2020, it collapsed by another 80 percent and amounted to only $7.6 billion. Last year, revenue rose again to $10.8 billion, but this is 75% less than in 2013.

Macau’s economy, arguably the most dependent on tourism in the world, has halved since 2019, according to government data.

The government has appealed to casino operators not to lay off employees.

Macau’s appeal is so great that Las Vegas Sands Corp., traditionally the world’s largest casino operator by revenue, sold its eponymous Las Vegas hotel in 2021 to stake everything on its six properties in Macau and one in Singapore.

The company has invested about $13 billion in Macau. One of the hotels is undergoing a major overhaul at a cost of $2.2 billion.

However, such a big bet on Asia has meant that Sands has been hit the hardest by COVID-19. The company reported a loss in the first quarter of $478 million. Revenue fell 21 percent year-over-year to $943 million.

Wynn Resorts Ltd. said revenue from its two Macau casinos fell, but its Las Vegas properties helped cap total losses to $183.3 million on revenue of $953.3 million, temporarily outpacing Sands.

MGM Resorts said its Macau first-quarter revenue of $268 million was down 76 percent from its pre-outbreak level of $734 million in the first quarter of 2019.

The addition of non-gambling assets will make Macau more like Las Vegas, where casinos are trying to attract families and non-gamers through roller coasters, music, malls, art exhibits and water parks.

SJM operates the cable car and indoor skydiving rides. He turned down an earlier proposal for a Hello Kitty theme park. The mogul behind Galaxy talked about a possible theme park reminiscent of the movie Avatar, but it never came to fruition.

“Managing amusement parks and themed attractions is expensive, and profits are questionable,” Lee said.

Regulators need to develop investment requirements “very carefully” according to Lee. “You can’t force concessionaires to invest in theme parks and entertainment without a return, unless it’s black and white.”